jreeves
Senior Member
- Feb 12, 2008
- 6,588
- 319
- 48
Permanent Tax Relief - Not Tax "Holidays" - Stimulates Economic Growth
It has grown fashionable in the media and in Washington to assume that what the economy needs right now is a quick stimulus, or "jolt," by putting cash in the hands of ordinary Americans--or government agencies--that they go out and spend. The theory is that people will take this money, go out and buy things, and this spending spree will reignite economic growth. Economists often refer to this as a "Keynesian" fiscal stimulus, named after the late British economist John Maynard Keynes.
A tax version of this idea has been embraced by some Republicans as well as Democrats. Their proposal: Americans would receive temporary tax rebate, or a "tax holiday" for a few months during which they would pay no federal taxes.
To be sure, letting Americans keep their money rather than sending it to Washington means it is more likely to be used wisely. But if the additional goal is to spur economic growth, this tax "jolt" will have little impact. Fiscal policy in the form of short-term tax holidays, or temporary spending jolts, will not rekindle economic growth; only long-term reductions in marginal tax rates on capital and work will accomplish that goal.
Long-term tax rate reductions--as opposed to short-term jolts--are needed because the important economic decisions that will trigger a real recovery depend on more investment in new factories and new equipment. Americans are more likely to make these investments when they believe that there will be a long-term improvement in the after-tax returns to investing, working, and taking economic risks. Such improvement requires long-term marginal rate reductions, not a temporary shot-in-the-arm.
The Treasury presses are going to be running non-stop over the next four years and Americans can expect no help from a liberal government only worried about spending more of their money.
It has grown fashionable in the media and in Washington to assume that what the economy needs right now is a quick stimulus, or "jolt," by putting cash in the hands of ordinary Americans--or government agencies--that they go out and spend. The theory is that people will take this money, go out and buy things, and this spending spree will reignite economic growth. Economists often refer to this as a "Keynesian" fiscal stimulus, named after the late British economist John Maynard Keynes.
A tax version of this idea has been embraced by some Republicans as well as Democrats. Their proposal: Americans would receive temporary tax rebate, or a "tax holiday" for a few months during which they would pay no federal taxes.
To be sure, letting Americans keep their money rather than sending it to Washington means it is more likely to be used wisely. But if the additional goal is to spur economic growth, this tax "jolt" will have little impact. Fiscal policy in the form of short-term tax holidays, or temporary spending jolts, will not rekindle economic growth; only long-term reductions in marginal tax rates on capital and work will accomplish that goal.
Long-term tax rate reductions--as opposed to short-term jolts--are needed because the important economic decisions that will trigger a real recovery depend on more investment in new factories and new equipment. Americans are more likely to make these investments when they believe that there will be a long-term improvement in the after-tax returns to investing, working, and taking economic risks. Such improvement requires long-term marginal rate reductions, not a temporary shot-in-the-arm.
The Treasury presses are going to be running non-stop over the next four years and Americans can expect no help from a liberal government only worried about spending more of their money.
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